Saturday, June 27, 2015

On the Verge of the Second Entrepreneurial Turn

Up until recent days, the history of humankind has been primarily a history of organized violence – wars, conquests, raids, slavery, oppression, and persecution. Entrepreneurs provided goods and services, but the attention of both the common man and the social scientist has been turned primarily toward the ruling caste of parasitic exploiters. It seems likely that this unfortunate state of affairs has been chiefly the result of the operation of some of the more unsavory features of our evolutionary heritage.

And yet some encouraging things happened along the way. In roughly the 17th and 18th centuries, the combination of the right moral and economic ideas (spontaneous order theory, the concept of the invisible hand, and the philosophy of natural rights to life, liberty and property), their widespread dissemination through the printing press, and the migration to America of a self-selected group willing to create a new society built around these concepts ushered in a qualitatively different era. For the first time in history, the entrepreneur has been widely and explicitly recognized as the driving force of civilizational progress, while the ruler has been demoted to at best a necessary evil. The first entrepreneurial turn has taken place, and humankind has finally managed to shake off at least part of its unfortunate primordial heritage.

Since then there admittedly have been several bumps and reversals along the way from violent primitivism to peaceful civilization, but overcoming them has only made the relevant ideas and practices more robust and refined. To use Taleb’s phrase, entrepreneurship is anti-fragile, and so are the ideas that make the world safe for its unhindered development. In their original formulation, they conceded a role for organized violence and even suggested that it is necessary for the smooth operation of entrepreneurial ventures. Perhaps it was precisely this concession that allowed organized violence to feed off the wealth-creating energy of entrepreneurial individuals and grow more deadly than ever before. And perhaps it was precisely this unfortunate result that prompted the contemporary rethinking of the economic and ethical foundations of entrepreneurship.

If the defining features of the entrepreneurial market process – creative destruction, alertness to unexploited profit opportunities, and economic calculation projected into the uncertain future – are so conducive to the efficient production of goods and services, why should they not be equally conducive to the efficient production of institutional frameworks that facilitate their unhindered operation? This is the central question that propels the second entrepreneurial turn – the theoretical and practical exploration of entrepreneurship as a multi-level phenomenon, operating not only within given institutional frameworks, but across them as well, and seen not only as a result of their existence, but also as the driving force behind their emergence.

This question becomes particularly interesting and relevant in the context of entrepreneurial provision of law and order. There, logical reflection backed by ample empirical case studies suggests that entrepreneurial competition might be uniquely suited to instantiate the kind of institutional features that Enlightenment scholars attributed to the optimal form of government. For instance, it might be the case that a network of multiple private protection and arbitration agencies vying for clients on the basis of service quality is uniquely suited to establishing a genuine and effective checks-and-balances system.

The possibilities opened by the first entrepreneurial turn were still limited by the existence of the allegedly necessary evil of institutionalized violence. The possibilities opened by the second entrepreneurial turn can be endless. The information age provides ample illustration of this optimistic perspective – we have already witnessed the entrepreneurial creation of many sophisticated institutional frameworks in the digital space, frameworks that are genuinely self-policing and that offer its users a multitude of extraordinary services. The Bitcoin infrastructure and Wikipedia are just two of the most obvious examples in this context. One can only wonder how extraordinary the results of unleashing the same entrepreneurial spirit in “physical” space would be.

Violence, especially in its organized and centralized form, necessarily eliminates all competition in the area of creating institutional frameworks for entrepreneurial action. Thus, it eliminates a practically infinite number of opportunities for commercial and broadly social advancement, offering in return what, due to its monopolistic, coercive nature can hardly be said to meet the logical criteria of a genuine good or service. One might hope that the time is ripe for this realization to provide a powerful catalyst for the second entrepreneurial turn, the one that will bring to completion the civilizing process of substituting cooperative liberty for parasitic power.